He returned to Twente a year ago and the club finished last season a disappointing sixth in the Eredivisie.
This season started better for Twente and the team was joint top of the Eredivisie at the season's halfway mark, but following the league's winter break its winning ways evaporated. In a string of disappointing results that led to unrest among the team's fans, it could only draw 1-1 at home to last-placed Willem II and lost to Utrecht and Heerenveen.
"We believe Steve McClaren could have turned around the disappointing results for FC Twente," club chairman Joop Munsterman said. "But Steve said it is in everybody's best interest for him to leave the club immediately."
McClaren's assistant, Alfred Schreuder, was named interim coach.